November 14, 2013

The guidelines, issued last month, come in response to complaints that servicers are failing to work with survivors who want to assume the loan for a property to which they have claim.

“There were concerns about servicers refusing to talk to family members, or demanding documents that basically didn’t exist,” said Kelly Cochran, the bureau’s assistant director for the office of regulations.

Diane Thompson, a lawyer at the National Consumer Law Center, says the matter is “one of the thorniest and most intransigent problems I hear about from attorneys across the country.”

Servicers are making “judgment calls” about the legal requirements without any real knowledge, she said. And lost documents are the norm. Grieving family members are frequently asked to provide the borrower’s death certificate multiple times, for example, before the servicer recognizes the death.

Surviving spouses who want to stay in their home can run into difficulties if they need a loan modification to afford the payments, Ms. Thompson said. Lenders are often unwilling to allow spouses to assume the mortgage unless they are current on their payments, but making these payments may be impossible for a survivor dealing with large medical and funeral bills.

Earlier this year, Fannie Mae issued a directive requiring servicers to allow spouses and other heirs to pursue a loan assumption and a modification at the same time, if necessary.

Come January, servicers are supposed to have policies in place for dealing with these situations. The consumer bureau’s guidelines outline what these policies should achieve: for instance, ensuring that employees “promptly” respond to successors, inform them of required documentation, and determine their eligibility for a loan modification.

Ms. Thompson said that although the guidelines were helpful, she would have preferred more clarity and some teeth.

“They’re not precise enough and don’t set out penalties for not complying,” she said. “When there are clear rules, you know what you have to do to comply. Nobody knows what ‘promptly’ means.”

Ms. Cochran said the language was intended to leave lenders some flexibility in dealing with the issue while “giving them a sense of what we’re looking at in the supervisory process.”

The survivors of a borrower in New Mexico recently won $3.1 million in damages after a state district judge ruled that Wells Fargo had wrongfully foreclosed on the borrower’s home after his death. According to the judge’s decision, issued in August, the bank pursued foreclosure on the property even after being notified that the family had filed a claim for a mortgage payoff under the borrower’s accidental-death insurance policy — which had been bought through Wells Fargo.

Calling Wells Fargo’s actions “staggering,” the judge noted that the lender “charged the estate for lawn care of the property (i.e., cutting the grass), even though no grass was actually cut.”

Ms. Thompson advises widows and other heirs to a mortgaged property to hire a lawyer if they aren’t named on the loan.

“They need to do an independent analysis of whether they want to keep paying on the mortgage,” she said. “If so, they need to communicate clearly to the servicer that they want to keep paying and are willing to assume the obligations under the note. And they need to do it as soon as they can.”